Real Estate Mitochondria

DISTRESS CAN COME FROM THE MOST UNLIKELY PLACES

When “Free Enterprise” gets it wrong, things can go pear-shaped quite rapidly. Take the Brisbane Central Business District as a prime example – and if this goes as badly as I think it will, the effects will flow to surrounding areas like a cancer.

Buyers are gullible. Who believes everything the salesperson and/or Developer tells them in their glossy brochures? Well, the vast majority it seems. People want a nice new shiny Apartment with a rental guarantee and massive capital gain to fund their retirement, buy a big boat and so on. The promoters will say and write anything, as long as it comes with a Disclaimer as long as a telephone book (and about as interesting).

People do NOT do their own research. Are they just lazy, or have so much money they can afford to lose $100,000.00 like dropping a $5 note on the ground? Or is it that they really do not want to find out that they can buy far better value for sometimes 100’s of thousands less a few blocks away where it’s all established and happy? Who knows?

The fallout from over 30 thousand Units/Apartments hitting a saturated Brisbane CBD market over the next 24 to 36 months will be catastrophic. This same thing happened here on the Gold Coast and was well publicised in the lead up, during and afterwards when folks lost their “investment” and their principal place of residence to the Banks as it was tied up as “security” for their supposedly bulletproof investment!

Prices of Apartments are falling – and fast – I would not be surprised to see discounting at the 15 to 20 percent range in the next 6 months. Rents are falling much faster. Apartments are sitting vacant for a couple of months, so cash poor landlords (many of whom have never had an investment property before) are going nuts at their letting Agent and saying “get me a tenant…at any price, as I am bleeding cash here!”

Well – there is your next problem. Crap tenants. Agents not only have to deal with a very large number of new Apartments to try and find tenants for, their time to check references is reduced so some very bad tenants will move in to new buildings and cause chaos. Good tenants in the same building will cry foul and move out to get away from the drunken party animals, leaving even more apartments vacant and the cycle then spirals downwards. There are many buildings here on the Gold Coast where the ratio of sole operator prostitutes to tenants in the same building is quite staggering! Not to forget the Mobile Drug Labs!

As rents crash and buildings become full of rat-bag tenants, first-time landlords will “want out” so even more Apartments will come on to the market, adding to the glut. These “distressed sales” will put more pressure on Developers, already staring at floors and floors of dead stock. Prices will “tank”.

When prices “tank” in one area, especially when you talk about tens of thousands of properties, the contagion rapidly spreads to surrounding areas as confidence falls.

I know I’ve been banging on about this rapid correction for a while now, but we are seeing the many and varied conditions required for a perfect storm, slowly but surely coming together.